“Pricing should continue to be constrained by excess capacity and
cost pass through could be challenging in the second half of
2010. Excess or below cost production should be limited.” Ms
Monica Bonar senior director at Fitch said “With capacity
utilization in most regions above 70%, steel producers are better
able to manage profitable production and prudent
investment. Producers with raw materials integration
should do relatively better given the rebound in raw materials
prices.”

Fitch believes that “Producers with relatively high exposure to
value-added steel products should benefit from premium pricing
and those with substantial operating scale, which can afford the
ability to temporarily curtail production during lulls to reduce
costs while serving customer demand, should also show sustainable
advantage.

The challenge will come for producers in austerity-struck
developed nations:

Producers with relatively high exposure to construction
in some developed countries will be disadvantaged as a result of
credit or fiscal induced austerity spending levels over the next
18 to 24 months.”

Overall, Fitch believes first half results for most producers
will be decent, benefiting from price hikes more than any penalty
from rising costs.